Alexander Sapronov Speaks on Petroleum Rail Freight Market Prospects

23 june 2017

Opening the VIII International Conference Rail Deliveries of Petroleum and Gas Refined Products, Alexander Sapronov, Executive Director of JSC Freight One, pointed out that the rail freight volumes decline in the liquid bulk segment, and the tank car fleet reduction driven by the service life extension ban jointly provide for a balance between the tank car fleet and cargo base in the market, saying:

“There are three key factors shaping the current oil freight market: competition with pipelines, reconstruction of refineries and the regulator’s decision to ban service life extension of rolling stock, including tank cars.

It is obvious that the economics of carrying petroleum products by pipeline offers more competitive opportunities than that of rail transport. The recent policy to expand the authority of JSC Russian Railways in matters of tariff regulation paired with a flexible tariff policy that meets the market conditions, improves the railway’s opportunities to compete with other types of transport.

The reconstruction of refineries, in turn, changes the range of oil products carried. The output of lighter products is going up, while that of fuel oil is decreasing, as it gets replaced with coke at several refineries, which, instead of tank cars, requires gondolas to carry.

The service life extension ban reduces the number of tank cars on the rail network. Operator companies place few orders with factories to build new tank cars. Commissioning of the South Stream oil pipeline has been announced, as well as expansion of the existing North Stream pipeline, construction of corporate oil pipelines by oil production companies is underway, and there are several other oil pipeline projects reported. These developments entail a reduction in the rail cargo base of oil products.”

As explained by the Executive Director of Freight One, for a successful development of the railway market, operators should focus on intangible assets, like increasing tank capacity and developing the range of services.

“Today, a tank car’s effective duty (carrying loads) is less than one third of the full working cycle. Two thirds of the time the tank either runs empty, or idles while loading and unloading, or waits for repairs, etc. This is where significant reserves are concentrated, and their mobilization does not require investment, changes in technology, administration, or transportation logistics.

Another factor Freight One pays attention to is development of the range of services. Price competition weakens market participants. However, if we rely on equipping the tank with a desirable service package, this gives a serious competitive advantage to the owner.

Companies with a highly developed range of services, such as 4PL logistics, don’t possess tangible assets, but only professional competencies, software, and a basis for negotiations with service providers and customers. We call this creation of intellectual capital, and its basis is the intellectual investment of the employees,” said Alexander Sapronov.

The conference held on June 23 in Moscow gathered representatives of oil and gas refineries, oil loading terminals, rail, logistics, car building and repair companies, as well as officials of FAS Russia.

The participants discussed the key issues of arranging transportation logistics for short, medium and long distances by various types of transport, and paid attention to bulk freight transportation in tank containers, as well as prospects for development of integrated chains of door-to-door cargo delivery.